Boosting India's Electronics Sector: ESC Urges for Stronger R&D Incentives

2024-12-29

The Electronics and Computer Software Export Promotion Council (ESC) has called upon the Indian government to significantly enhance incentives for research and development (R&D) in the electronics hardware sector. This includes a plea for a more inclusive Design Linked Incentive (DLI) scheme, substantial tax reductions for companies investing heavily in R&D, and a 10-year tax holiday for sales of products with Intellectual Property (IP) developed in-house.

During recent meetings with Finance Minister Nirmala Sitharaman, ESC emphasized the critical need for a robust R&D ecosystem to drive innovation and reduce India’s dependence on imports in cutting-edge technologies like AI, IoT, and semiconductors.

The industry body proposed a 5% income tax reduction for Indian companies investing over 3% of their turnover in R&D and filing patents or designs in India. This, they argue, would incentivize companies to prioritize innovation and contribute to India’s technological advancement.

ESC also advocated for a 10-year extension of the DLI scheme until 2035, recognizing the long gestation period of electronics and semiconductor design projects. They further suggested allowing the rollover of unutilized funds from the current allocation to subsequent years, ensuring optimal resource utilization.

To address the rising demand for R&D in emerging quantum technologies, ESC called for a substantial increase in funding for the DLI scheme, proposing an additional USD 20 billion.

Furthermore, ESC has sought a 10-year tax holiday on sales of products with IP developed through in-house R&D efforts. This measure aims to encourage companies to invest in creating innovative and proprietary technologies, reducing reliance on foreign patents and designs.

The industry body acknowledged that India’s current R&D expenditure in the electronics sector lags behind global leaders. While India’s electronics market is substantial, its R&D investment remains modest compared to countries like China, the USA, and Israel.

ESC’s recommendations aim to address this gap and foster a thriving electronics sector in India, characterized by strong innovation, reduced reliance on imports, and global competitiveness.

What Undercode Says:

This article highlights a critical issue: the need for India to significantly bolster its R&D efforts in the electronics sector. While the government has taken steps to incentivize innovation through schemes like the DLI, ESC argues that these measures need to be further strengthened to compete effectively on the global stage.

The proposed tax incentives, such as the 5% income tax reduction for R&D-intensive companies and the 10-year tax holiday for IP-driven products, are particularly noteworthy. These incentives have the potential to directly impact corporate investment in R&D, driving innovation and fostering a more competitive landscape.

However, the success of these initiatives will depend on their effective implementation and continuous evaluation. The government needs to ensure that these incentives are targeted effectively, reaching the intended beneficiaries and driving the desired outcomes.

Furthermore, building a strong R&D ecosystem requires a multifaceted approach. This includes not only financial incentives but also investments in education and training, fostering collaborations between industry, academia, and research institutions, and creating a conducive regulatory environment for innovation.

The article rightly points out the need for sustained and long-term support for R&D initiatives in the electronics sector. Short-term measures are unlikely to yield the desired results. A long-term vision with consistent and predictable policies is crucial to attract and retain talent, encourage private sector investment, and build a globally competitive electronics industry in India.

Finally, it’s important to remember that R&D is not just about short-term gains. It’s an investment in the future, laying the foundation for long-term economic growth and technological leadership. By prioritizing R&D and fostering a culture of innovation, India can position itself at the forefront of the global electronics revolution.